KUWAIT ENERGY plc GROUP
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three months ended 31 March 2014
F-21
Current portion
4,744
6,744
114,772
112,551
During 2012, the Group entered into unsecured financing arrangements with Abraaj Capital and Qatar First Bank
for USD 150 million each (total value of USD 300 million). Under the arrangements, the group has drawn down
an amount of USD 100 million, of which USD 83 million was drawn down in 2012 and USD 17 million was
drawn down in 2013. Of the USD 200 million remaining on the loans USD 50 million has expired and the
residual USD 150 million is subject to certain additional conditions precedent. The loans are repayable in three
equal instalments payable at every six month interval starting from 66
th
month from the first draw down date. The
loans carry a coupon interest of 8% and, together with an additional interest uplift of 8% which is payable at
conversion (total effective interest rate of 16%), will be converted into the equity shares of the Company or will
be repaid in cash depending upon exercise of certain conversion or prepayment options by the lenders and the
Company. If the options are not exercised, the outstanding loans, without additional interest, are repaid in cash as
per the repayment schedule.
If the conversion options are exercised, the outstanding loans, together with the additional 8% interest uplift, are
convertible into shares of the Company based on the fair value of the shares on the conversion date. These
embedded options are in the nature of embedded derivatives which have been determined not to be closely related
to the loan arrangements. The group has opted to recognise the convertible loans as financial liabilities at fair
value through the income statement.
The fair value of the total liability as at 31 March 2014 is determined at USD 114,772 thousand (31 December
2013: USD 112,511 thousand. A loss of USD 3,901 thousand (three months ended 31 March 2013: USD 2,899
thousand) arose during the quarter for the change in fair value since the prior period as a result of changes in the
forecasted cash flows, out of which USD 1,680 was paid as coupon interest, which is recognised in the income
statement in 'fair value loss on convertible loans'. Of this amount USD 885 thousand has been capitalised to
qualifying assets in the period, see note 8, resulting in a net charge to the income statement of USD 3,016
thousand.
The convertible loans are classified as Level 3 in all the periods presented. Level 3 fair value measurements are
those derived from inputs that are not based on observable market data (unobservable inputs). The group uses a
discounted cash flow technique to determine the fair value of the loans. The significant inputs considered in the
valuation are likelihood and timing of an equity offering and the discount rate. The discount rate used was in the
range of 15-17%.
14.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Financial instruments comprise of financial assets and
financial liabilities.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by
valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices that are observable for assets or liabilities either directly (as prices) or
indirectly (derived from prices); and
Level 3: inputs for assets or liabilities that are not based on observable market data.
14.
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Fair values of all financial instruments are not materially different from their carrying values. For financial assets
and financial liabilities that are liquid or having a short-term maturity (less than three months) it is assumed that
